Consumption in the US is not weakening, but inflated by inflation

posted on Tuesday, May 17, 2022 at 11:54 pm.

Consumer spending in the United States is still rising, but it has been inflated by inflation, which is lengthening consumer bills and shrinking the contents of their shopping baskets. Rising costs are also affecting the profitability of some large retailers such as Walmart.

Supermarket giant Walmart, known for its low prices, saw an increase in spending in the food sector and a decline in non-food purchases.

Consumers bought more less expensive brands, especially meat or dairy products.

In addition, clients have tightened their belts on other spending, especially since the exceptional aid the government paid out during the pandemic has expired.

However, as summer approached, the group sold more garden furniture and barbecues.

Walmart’s core customers are “generally more price sensitive and more exposed to high inflation,” which remained close to its highest level in 40 years in April, said Global Data’s Neil Saunders.

The retail giant’s revenue rose 2.4% to $141.6 billion between February and April.

– inflation was there –

But inflation took a toll on his net income, which fell 25% to $2.05 billion. The company even lowered its profit forecast for the full fiscal year, causing its stock on the New York Stock Exchange to drop 11.38% by close.

Increased inventories of items abandoned by customers led to increased storage and transportation costs, which were affected by the sharp rise in gasoline prices.

Walmart also found itself with much higher payroll costs than expected after hiring during the holiday season to replace employees absent due to the Omicron option. But the workforce ended up being much larger than necessary due to the rapidly declining number of infections.

Another retail brand that allows us to gauge consumption in the United States, Home Depot, a home improvement and furnishing chain, also posted a 4% year-over-year increase in its turnover in the same three months, to 38. 9 billion dollars.

Inflation, however, went with it: the number of transactions made in its stores fell by 8%, even if the average amount spent by shoppers increased by 11%.

The pandemic has provided many American families with an opportunity to renovate or refurbish their homes, something Home Depot has benefited greatly from.

Net income (+2%) also grew slightly slower than sales, but the group raised its sales forecast for the year slightly, and the share price rose 1.68%.

– Tolerance is being tested –

“The biggest challenge for retailers now will be balancing lower sales volumes with higher costs,” said Neil Saunders.

Total U.S. retail sales – in stores, online and at restaurants – rose 0.9% in April alone from March, the Commerce Department said on Tuesday.

But this increase in spending doesn’t just mean that consumers bought more. This is also a reflection of prices which are still rising at a high rate.

In the coming months, “consumer tolerance for high inflation will continue to be tested,” said Lydia Bussour, an economist at Oxford Economics.

However, it assumes that consumer spending will continue to be robust through rising wages and savings.

US Central Bank (Fed) President Jerome Powell recommended positive growth, but not too strong, to curb inflation.

“What we really need is to bring growth down from last year’s very high levels, slow it down, but still stay positive” so that supply and demand can be level, he also said in a conversation Tuesday. with the Wall Street Journal.